Directorate-general for agriculture and rural development

12.3.UNITED KINGDOM — Northern Ireland

Enquiry No	AA/2009/24
Mission dates	09-13/11/2009
Observation letter	Ares (2010) 9164 dated 8.1.2010
Reply Member State	CL/410 dated 29.3.2010
Invitation bilateral meeting	Ares (2010) 271325 dated 20.5.2010
Conclusions bilateral meeting	Ares(2010) 488208 dated 4.8.2010
Reply Member State	Letter dated 4.11.2010
Conciliation letter	Ares(2012) 128136 dated 3.2.2012
Request for conciliation	N/A
Conciliation reference	N/A
Conciliation Body’s opinion	N/A
Final letter	N/A

12.3.1.Main findings

12.3.1.1.Weaknesses related to the LPIS-GIS

To be useful for the farmer when lodging his claim (cf. Art.12 of R.796/2004) and effective for the administration when performing the necessary checks to establish eligibility of areas claimed for aid (cf. Art.23, 24, 29 and 30 of R.796/2004), it is essential that the information in the LPIS-GIS (cf. Art.20 of R.1782/2003 / Art.17 of R.73/2009) is accurate as regards the identification of the parcels and the eligible area and the boundaries of the reference parcels. This requires that (in principle) reference parcels are stable and that the information as regards their boundaries, the total area and the area of ineligible features is correct and up-to-date. In particular, the identification of land cover change involving non-agricultural, wooded, built-up or non-arable areas must be carried out effectively and the LPIS-GIS updated.

Previous audits (cf. enquiries AA/2006/07 and AA/2008/18) revealed serious shortcomings in the correctness of the information on the maximum eligible area held in the databases (LPIS-GIS and GAS) in place.

The present audit evidenced that in 2009 the information in the LPIS-GIS / GAS remained insufficiently accurate to ensure that the administrative cross-checks to establish eligibility of areas claimed for aid (cf. Art.23 and Art.24 of R.796/2004) were sufficiently conclusive.

The deficient situation encountered is caused by the following.

• 
  The information available to the authorities (e.g. the ortho-imagery available for the whole of the country since 2007) was not systematically used to update the maximum eligible area held in the system in place. Cases were found by the audit where ineligible features (buildings, including those indicated on the maps with greyed symbols, yards, lanes, trees, scrub, bushes, whins), though visible on the available ortho-imagery, had not been excluded in the LPIS-GIS / GAS; at least until the on-the-spot check took place. Taking into account the criticism as to the quality of the on-the-spot checks (cf. infra), DG AGRI is of a view that the area recorded (in the GAS database) can be overstated also in cases where an on-the-spot check took place. The ortho-imagery has been used in updating the LPIS only upon farmers' notifications or following on-the-spot checks findings, and in inspections.
  

• 
  Cases were found where farmers still failed to notify changes to or presence of ineligible features in their parcels (cf. Art.12(4) of R.796/2004).
  

As to the assessment of the corresponding risk to the Fund, the authorities developed a calculation concerning SPS in claim year 2009.

Certain shortcomings have been identified in the risk assessment exercise, related mainly to the authorities' approach to treat heather land as eligible and the non-exclusion of some of the ineligible areas >0.01ha. However, these issues are not considered so substantial that they would invalidate the risk assessment.

12.3.1.2.Weaknesses related to the on-the-spot checks

Previous audits revealed problems in the performance of the on-the-spot checks. The present audit revealed that in 2009, despite the improvements made in the procedure (use of ortho-images as of 2008, use of GPS and mobile PCs as of 2009 for part of the inspections, staff trainings on the assessment of usable areas within the parcels), the on-the-spot checks in N-Ireland have not been carried out to the standards required by Art.23, 29 and 30 of R.796/2004.

Though the deductions made by inspectors (e.g. for buildings, scrub, trees…) seemed more accurate than witnessed in previous missions, still cases were found where ineligible areas (cf. Art.2 and Art.8 of R.796/2004) had been accepted by inspectors. The audit re-performances of the on-the-spot checks (ca. 90 parcels in total) resulted in differences in area accepted in 15 parcels, including 4 parcels subject to the rural development on-the-spot check. Of these 15 parcels, material differences with the initial measurement were noted in 9, of which 8 are agreed by the authorities.

It was found that for ineligible features like whins, scrub, shrub identified at on-the-spot checks the "effective date of change" established by inspectors is not always correctly set (it has been set at post-2005 while the "non-agricultural use" can already be seen on the ortho-images of 2003).
The dates as from what year the deduction should be made are therefore not always correct, which affects the correct application of the sanction provisions and the retro-active recovery (cf. infra). This finding was already reported under enquiry AA/2008/18.

The above failings indicate that the ortho-imagery has not always been effectively used at inspections.

Other weaknesses noted:

• 
  The instructions on acceptance of features >4m wide (cf. Art.30(2) of R.7962004) were found incorrect. The authorities do not consider that boundaries >4m wide are widespread in N-Ireland, but no information on the impact on areas determined has been provided.
  
• 
  GAEC breaches were not always reported (cf. Art.48 of R.796/2004).
  

These weaknesses also affect the correctness of the information in the LPIS-GIS used for cross-checks.

12.3.1.3.Weaknesses related to payments and sanctions

1. Calculation of sanctions / (Systematic) recalculation of the entitlements / Retro-active recoveries of undue payments

The authorities have continued to apply the procedure of systematic retro-active re-calculation of entitlements in cases where a check reveals a difference in eligible area affecting the area used to establish entitlements in 2005 (without verifying if the farmer could have reasonably detected the errors).

Furthermore, the recalculation only takes into account the flat rate element without assessing whether the differences in areas established would affect the animal premia paid in the reference period (2000-2002), i.e. the historical part of the entitlement.

The adopted procedure implies that a recalculated (increased) entitlement value is used for payment for the current claim year and for adjusting the payments made for previous claim years. This affects the application of sanctions and payments made in respect of the claim year concerned and recoveries of undue payments made in previous years (cf. Art.49, 50, 51 and 73 of R.796/2004). The procedure has been found non-compliant with the applicable legislation (cf. enquiry AA/2008/18).

Moreover, in cases where recovery action took place, it did not always go back in time sufficiently, as the ''effective date of change'' has not always been correctly set at the on-the-spot checks (cf. supra).

DG AGRI recalls that the observation on the issue of the systematic retro-active recalculation of entitlements and the calculation of reductions and sanctions has been included in the observation letter dated 12/08/2008 where a change of the procedures has been requested to ensure compliance (for 2008 claim year onwards).

1. Intentional non-compliance

The audit concluded that in 2009 the procedure for assessing and pursuing intentional non-compliance (cf. Art.53 of R.796/2004) remains clearly deficient. The finding has already been addressed in the context of previous audits.

It is still the procedure that a claimant is to be judged on fraud by the Central Investigation Service (CIS) and potentially further referred to court before sanctions on intentional non-compliance can be applied.
An audit review of the 2008 cases referred to the CIS revealed however that none of these concerned over-declaration of areas. On the other hand, the audit found cases where a referral to the CIS should have been considered, even in accordance with the criteria for referral listed in the relevant procedure document: 'claiming clearly ineligible areas, for example, all year round sporting facilities, beaches, ungrazed wooded areas, buildings, laneways'.

The authorities have undertaken investigations in relation to 456 cases identified by a cross-check and 3 cases identified by a review of ortho-photos. From the information provided, it seems that all the cases identified by the administrative check have finally not been considered intentional. In relation to 3 other cases, the investigations were on-going.

DG AGRI takes note of the above actions. However, there is a risk that not all cases will be detected (e.g. cases of over-declarations found by the on-the-spot checks). Therefore the situation cannot be considered fully remedied.

12.3.2.Member State’s arguments

The Member State generally agreed with the findings.

12.3.3.Position of the Commission before conciliation

On the basis of the findings and considering all the explanations provided by the Member State, DG AGRI maintains that the weaknesses established generated a risk to the Fund. The weaknesses represent a failure in the functioning of key and ancillary controls.

In accordance with document VI/5330/97, and to avoid the application of a flat correction, the UK authorities developed a risk calculation to allow an evaluation of the risk to the Fund caused by the weaknesses noted above.

Therefore, taking into account the risk assessment provided by the UK, as reviewed by DG AGRI, the following financial correction is proposed for the weaknesses related to the LPIS-GIS (pt. 1.1), the weaknesses related to the on-the-spot checks (pt. 1.2) and the weaknesses related to payments and sanctions (pt. 1.3). The detailed calculation can be found in Annex.

With regard to SPS:

In accordance with document VI/5330/97, DG AGRI is of the view that for these deficiencies the application of a one-off correction is the best way to asses the risk to the Fund, taking into account that the estimated amount of irregular payments provided by the UK authorities for SPS in claim year 2009, and thus the amount of financial losses suffered by the Community, can be reasonably determined. The UK authorities estimated the risk at 5.19% of the total payments, including the effect of sanctions. DG AGRI is of the opinion that this risk estimation can be accepted.

With regard to 2^nd pillar:

With regard to 2^nd pillar area based measures, no risk estimation has been provided by the UK. Consequently, DG AGRI considers that the application of a flat rate correction is the best way to assess the risk. The weaknesses established are of recurrent nature, which in principle would mean that the 5% correction applied for previous claim years would be increased to 10%. Yet, as indicated in document AGRI/61495/2002, this increase cannot be automatic, but due consideration is to be given to the seriousness of the deficiency and any factors limiting the risk. Therefore, based on the available information, DG AGRI does not believe that all conditions to apply the said provisions are met, as the risk to the Fund has not increased to an extent which would merit a 10% correction. Thus, in accordance with Document VI/5330/97, a correction of 5% on the expenditure for area-based rural development measures is justified for a failure to operate a "key" control.

Correction proposed:

E.C. Budget Item FY 2010	Type of Expenditure	Gross amount excluded EUR	Net amount excluded (Effective financial impact) EUR
	SPS (SINGLE PAYMENT SCHEME)
05030101 0000 013	Single Payment Scheme - payments < 5.000 € - 7% modulation - R.73/09, title III - calendar year 2009 - Northern Ireland, UK	-5.808.772,26	-5.786.181,68
05030101 0000 014	Single Payment Scheme - payments > 5.000 € - 12% modulation - R.73/09, title III - calendar year 2009 - Northern Ireland, UK	-10.704.810,31	-8.772.706,37
Axis 2 Measure	Rural Development - Improving the environment and the countryside
212	LFA other than mountain areas	-654.595,30	-654.595,30
214	Agri-environmental payments	-488.384,40	-488.384,40
221	First afforestation of agricultural land	-30.740,89	-30.740,89
	Total	-17.687.303,16	-15.732.608,64

The deficiencies established in the course of the audit are far less affecting coupled aid schemes under the 1^st pillar. The risk to the Fund can be considered negligible and DG AGRI thus deems it justified not to propose a correction for these schemes (Protein crop premium and Aid for energy crops).

Any amounts recovered from the farmers after the date of this letter, in connection to the deficiencies for which the present financial correction is proposed, can be credited to the national budget.

To avoid any double corrections, DG AGRI took into account the impact of the financial corrections applied on the same expenditure under enquiry NAC/2010/005/GB.

12.3.4.Opinion of the Conciliation Body

The UK authorities did not refer the matter to the Conciliation Body.

12.3.5.Final Commission position

Not applicable.